A Telephone Visionary Who Is Cutting the Cords for Consumers

As with most things with Craig O. McCaw, there was no high-voltage epiphany, no eureka, no heartbeat-skipper that he can point to in 1979 when the realization that changed his life and the course of an industry began to take hold.

It was merely a gradual dawning that came as he drove around the streets of Seattle in his 1974 Pinto station wagon with the most advanced car telephone then available, dialing 10 times, sometimes 20 times, even 30 times, just to complete a single, scratchy, disconnects-if-you-turn-the-wrong-way phone call.

"It seemed to me that if it could be done right and in a big way," he said quietly last week, "cellular phones would be worth a fortune."

Earlier this month, Mr. McCaw went far beyond proving the financial value of cellular telephones and took a giant step toward fulfilling a vision that is radically changing how people communicate electronically.

That step came on Nov. 4, when the American Telephone and Telegraph Company announced that it was negotiating to buy one-third of McCaw Cellular Communications Inc., of which Mr. McCaw is chairman, for $3.8 billion. McCaw, based in the Seattle suburb of Kirkland, Wash., already is the nation's biggest cellular carrier. But with a single stroke, the deal with A.T.& T. would sharply cut McCaw's massive $5 billion debt, put the esteemed brand name of A.T.& T. on the business cards of McCaw sales executives and open the doors to McCaw of A.T.& T.'s famed Bell Laboratories for the technical advance of cellular phones.

"There isn't any question that McCaw could become a great company without A.T.& T.," said James L. Barksdale, McCaw's president, "but this deal allows us to do it better and quicker." Dennis Liebowitz, a longtime cellular analyst for Donaldson, Lufkin & Jenrette Inc., the securities firm, said, "It brings the company much closer to the wireless future that Craig envisions. He didn't have the money before this."

"We invented cellular," said Lewis M. Chakrin, A.T.& T.'s vice president for personal communications services. "McCaw capitalized on it and understands it. This is a very natural alliance."

NEARLY half of America's households already have cordless phones, which grant only a tantalizing degree of mobility, out to the porch or the backyard. Using cellular phones, and the second-generation wireless phones now being developed called personal communications services, Americans in a few years will have a freedom of movement and access to services undreamed of only a decade ago.

Like the Gulliver figure in McCaw's television commercials, consumers will one day be fully liberated from the tyranny of the tethered telephone. They will be able to make and receive phone calls wherever a radio signal can reach -- not just in a car or on the street, as today's cellular phones allow, but also inside buildings and on mountaintops in remote sections of the country, where technical limitations now prevent cellular phones from working. McCaw and A.T.& T. are expected to lead the development of a new wireless network that will permit all that on a national basis, equipping consumers with such Jetsonian devices as wireless notebook computers for transmitting and receiving fax messages and phone calls.

IF the deal with McCaw is made final, A.T.& T. would be the latest in a series of large strategic partners that have opened their wallets for McCaw at crucial stages in the company's development. Such partners include E. W. Scripps, a broadcasting and newspaper publishing company; Affiliated Publications Inc., owner of The Boston Globe, and British Telecommunications, the owner of much of the McCaw stock that A.T.& T. plans to buy. Yet even though outsiders have often owned large chunks of the company, they have not taken away McCaw's independence.

"We've always been in the money-raising business, looking for partners," said Mr. McCaw, who is 43. "That's been our modus operandi from the very beginning -- expanding and contracting debt in order to grow."

He has grown so much that a year ago he launched the North American Cellular Network, which despite its name still has a way to go before it is even fully national in scope and becomes a true wireless counterpart to the more than 200 million miles of copper wire installed over the last century. Nonetheless, beginning with 600,000 of its own subscribers, McCaw has already added 900,000 more to the network, from its own operations and from such carriers as BellSouth, Pacific Telesis and Cantel of Canada.

Mr. McCaw's goal is to establish a network with all the features of the wired network and more. When a customer travels from, say, San Francisco to New York, she knows how to use a wired telephone and how to pay for it.

Nothing is that simple with cellular phones. Like more familiar cordless phones, cellular phones are radio transmitters. There is no extra charge for using the frequencies for cordless phones because the signal goes a short distance in the home to an inexpensive link to the wired network operated by a local telephone company. But cellular frequencies carry a big extra charge because they connect relatively long distances to expensive radio transmitters and computers in service areas known as cells, which then link up to traditional networks.

Because there are more than 120 cellular carriers, a cross-country traveler could pass through cells operated by scores of different carriers, temporarily signing up electronically with all those companies in order to use the local radio transmitters and be properly billed. Prices, already high, are even higher for what the industry calls "roamers," sometimes two or three times the price in the customer's home territory.

With proper equipment -- powerful radio transmitters, a network of sophisticated computers that can talk to each other despite being made by different manufacturers and the all-important software and databases that make all of this run smoothly -- a national wireless network would act as swiftly and seamlessly as the wired network.

BESIDES freeing customers of wires, a national network might free them of many different telephone numbers -- one for the home, another for the office, more for the vacation house, the fax machine and the pager. A.T.& T. already is experimenting with a single number for customers called an Easyreach number with a 700 prefix.

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Someday, all Americans might be issued a single phone number, much like a Social Security number, associated with a person, instead of a place. Customer could then receive calls wherever they are, relayed by a sophisticated system of call-forwarding from wired phones. A series of passwords issued to friends, family and the boss could allow calls to pass through electronic screens, like a ban on calls after 9 P.M. or before 7 A.M.

Such a network with its power and flexibility is easy to describe but fiendishly difficult to implement. Of all the world's telecommunications companies, however, A.T.&T. has the most experience in how to handle millions of calls.

A call that follows you around, for example, essentially requires a computer to look up possible sites where a customer is or requires a customer to "check in" or can track down the distinctive signals of a particular telephone as a customer begins to dial.

In principle, such a call resembles an 800-number call. A toll-free call is a form of collect call that causes a computer to search a complex database and figure out proper billing. Last summer, customers flooded airline phone lines in search of cut-rate fares. For a brief time, a majority of A.T.& T.'s 170 million daily calls were 800 numbers yet they were handled without incident. Such knowledge is essential to devising future wireless networks.

McCaw is working on a number of telecommunications fronts in which A.T.& T.'s Bell Laboratories scientists would be invaluable. McCaw and the Oracle Corporation, for example, are developing a new form of high-speed wireless data transfer so that engineers, business executives and journalists could send faxes, charts, spreadsheets and other data quickly and easily without hunting for a telephone jack. A.T.& T. and the Go Corporation are working on similar methods for such "personal digital assistants."

Such pragmatism also underlies what, for A.T.& T., is an unusual acknowledgment of error. A.T.& T. left the manufacture of cellular phones in 1986 and recently returned.

"The question we asked was, 'How many cars need phones?' And the answer is, 'Not many,' " said Mr. Pelson. "The right question is, 'How many people want mobility?' And the answer is, 'A lot.' That's where we come in." MCCAW: THE EARLY BIRD OF THE CELLULAR INDUSTRY

The McCaw cellular empire grew out of a cable-television business that was founded by Craig McCaw's father, J. Elroy McCaw. When his father died unexpectedly in 1969, Craig McCaw joined with his three brothers to revive the cable business, which had been largely sold off to pay debts.

After 10 years, the company still had barely $3 million in annual revenue, but the brothers decided to gamble and took out a $10 million loan at 22 percent interest to buy new cable properties. In 1980, they sold half the company to Affiliated Publications Inc. for $12 million to further build a war chest for new ventures.

By 1983, when it became clear Washington was going to license cellular telephone operators, Craig McCaw and one of his brothers, John Elroy McCaw Jr., began aggressively to buy cellular properties.

The Federal Communications Commission had carved up the country into 734 territories for cellular development, allowing no more than two carriers per territory. One carrier would be the local phone company, typically a regional Bell or a company owned by the GTE Corporation. The other carrier was to be determined by lottery, which brought out thousands of speculators, many of whom had no intention of operating a cellular company but saw the potential for selling their rights.

McCaw entered 60 lotteries and managed to lose every one. So it was forced to buy properties, a sometimes comic exercise. In Arkansas, for instance, an eccentric Oregon businessman had won the important Pine Bluff territory, which adjoined Little Rock. McCaw bought the rights to the territory for $2 million, which the Oregon businessman promptly used to help build a 22-mile miniature railroad.

On the whole, "the prices were so low that we couldn't lose," recalled Craig McCaw. Indeed, the company acquired rights to potential subscribers for less than $10 a head. By 1989, they were worth $190 to $225 a head, according to Dennis Liebowitz, a cellular analyst for Donaldson, Lufkin & Jenrette.

Even so, some territories were larger and harder to digest than Pine Bluff, so McCaw traded away large chunks of assets for huge infusions of money. In 1987, McCaw Cellular, by then the 20th-largest cable operator in the country, sold all of its television operations to Jack Kent Cooke for $790 million. In 1989, McCaw sold 22 percent of its common stock to British Telecom for $1.3 billion. By law, B.T. could not buy more than 25 percent, a factor in its later willingness to sell to A.T.& T.

With his wallet full, Craig McCaw made his boldest move yet, making a hostile but successful $3.2 billion bid in 1990 for half of Lin Broadcasting, another large cellular company. With Lin's five major urban markets, including New York and Los Angeles, Craig McCaw established his company as unquestionably the largest and most aggressive cellular carrier.

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A version of this article appears in print on November 15, 1992, on Page 3003005 of the National edition with the headline: A Telephone Visionary Who Is Cutting the Cords for Consumers. Order Reprints|Today's Paper|Subscribe